Mcdonald’s Operations and Supply Chain – a Sustainable Edge

1 January 2017

The key to McDonald’s success is through the strength of its brand (Anonymous 1996) and System – the strong alignment between the Company, its franchisees and suppliers. The company views itself primarily as a franchisor and believe that franchising is critical to delivering great, locally-relevant customer experiences whilst driving profitability (McDonald’s Corporation 2011). This report explores the operations and supply chain of McDonald’s where it is apparent that this franchisor-like ulture is embedded within them both, giving its operations a sustainable edge. McOperations: McDonald’s operations are exemplified by its quickness of service and efficiency, which is even reflected in its employment culture – whereby a large sum of restaurants employ almost 100 per cent part-time hourly staff (Hur et al 2004). McDonald’s puts a great emphasis on teaching the operating manuals to each franchisee (Ferdows 2006) so that every single restaurant is unified, with a commitment across all its employees reflecting a Total Quality Management (TQM) approach.

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Its restaurants have a standardized menu with slight variations dependant on what country it is in, serving a homogenous market, positioning it to being one of the largest food service retail chains in the world. In regards to sustainability – the main challenges that restaurant operations face are energy use, water consumption, and waste management and greenhouse gas emissions, which will be discussed further throughout this report. Supply Chain Management: McDonald’s has two types of suppliers, Tier-1 and Tier-2 suppliers.

Tier-2 suppliers are essentially the growers, whose products supplied to the Tier-1 suppliers who process them. The finished products are transported to the company’s Distribution Centres (DCs), which is then distributed via refrigerated trucks to the restaurants. The fleet consists of modified multi-temperature vehicles that allow the transportation of various products. This relatively new feature in the trucks has launched the efficiency and effectiveness of McDonald’s supply chain in comparison to its competitors such as Burger King.

The McDonald’s supply chain is 100 per cent outsourced, whereby they successfully integrate supply and demand management within and across its restaurants (Mentzer et al 2008). The company believes in outsourcing to those who are subject matter experts and has high expectations of its suppliers as their identity revolves around efficiency and consistency (Ketchen et al 2011). The company constantly monitors suppliers to ensure that KPI’s are not affected and the relationships are long term and transparent.

Not only do all suppliers have an industry level certification ensuring food quality and safety (adhering to Hazard Analysis Critical Control Point standards – HACCP), but McDonald’s has also devised its own food safety system and it is the belief of McDonald’s that a supplier’s job does not end when the product leaves their premises, rather it ends only when the customer consumes it. Limited items on the menu helps turn the supply-chain into a streamlined system of operations as sourcing the ingredients becomes easy (Cheema 2011).

However the rigidity of their operating and supply chain systems were at one point a limiting factor in its response to change (Rainbird 2004). McDonald’s has since embarked on a journey of change, driving sustainability and realigning its supply chain to what Rainbird (2004) refers to as its demand chain – which is the changing expectations of consumers. McDonald’s has a ‘pull-supply’ chain, whereby the DCs take all restaurant supply orders routing them to the supplier who will only then produce it.

The supplier thus maintains barely any extra stocks. Demand forecasts are continuous with three-day to one-week forecasts provided by each restaurant, and DCs having a three-month rolling forecast with its suppliers. It also implements 31Q Long Term planning whereby 3 is for the three years that the fast food chain will continue tracking its plans, 1 represents the forecast of the next year and Q symbolizes the quarterly monitoring of these forecasts (Cheema 2011). Sustainability:

To be sustainable in business is having the capacity to endure and the ability to meet the needs of today without compromising your or future generation’s ability to meet the needs of tomorrow. McDonald’s is notably one of the greatest garbage producers in the world and over the years, has received a lot of flak for it. To stay ahead of its game (and a public flogging), it has implemented sustainable practices into its operations and supply chains, which has deemed itself a continuing success for the company, starting with the switch from Styrofoam to paper containers following public concern (Chandrashekar et al 1997).

A McSustainable Supply Chain: In the pursuit of sustainability across its supply chain, McDonald’s has developed a scorecard which is used to measure supplier environmental performance for water, energy, waste and emissions. They also have a Sustainable Land Management Commitment which requires that its suppliers only use agricultural raw materials for the company’s food and packaging that originate from sustainably managed land (Marine Stewardship Council 2011). Source: McDonald’s 2010

McDonald’s also has a Sustainable Supply Steering Committee, which is responsible for leading the company to achieve long-term growth in profits through a sustainable supply in all areas of the world (McDonald’s 2010). It encompasses Economic, Social and the Environment, ensuring that all its suppliers adhere to a global Code of Conduct for Suppliers, outlining minimum set requirements. This is encompassing the six-sigma approach of defining, measuring, analysing, improving and controlling (DMAIC) across the supply chain. Source: STCWA 2009

However, when it comes to what gives this company a sustainable edge via its operations and supply chain, the pivotal area of concern is the environment. McDonald’s has addressed that waste, recycling, packaging material and design are crucial cogs in the sustainability wheel of its supply chain and operations, affirming that its responsibility to the environment spans the entire life cycle of its products. McDonald’s total transparency and relationship efforts in partnering with their suppliers assist them in providing an uninterrupted, long-term supply of quality food and packaging.

In 2009, a lighter McFlurry spoon was introduced which is estimated to save 23 tonnes of plastic per year (McDonald’s Australia 2010). It should be noted that regardless of the sustainable measures taken, total packaging has increased globally due to business growth. The use of genetically modified products such as the Innovator Potato by McCain, provides greater productivity and environmental benefits using less water than other potato crops (McDonald’s Australia 2010).

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